A look at trading Nasdaq Futures

The Nasdaq 100 is a stock index of the 100 most capitalized corporations on the Nasdaq stock exchange. This index has many differences to the Dow Jones and the S&P500. Firstly, the NASDAQ contains corporations that are incorporated both inside and outside of the United States.

Secondly, the Nasdaq 100 does not contain any Financial corporations in the index.

The standard Nasdaq contract is valued at 100 times the price of the Nasdaq. For example, if the Nasdaq was priced at 2,000 points, the nominal value of the futures contract would be $200,000. On an open contract, each point movement would be worth $100. These contracts are traded on the Chicago Mercantile Exchange. Currently the margin requirement for this contract is $16,250.00 and maintenance margin is $13,000.

Let's look at an example of how you could trade Nasdaq Futures.

Let's say Barbara has been watching the news lately and feels the Nasdaq is going to crash in the next six months. She could short sell a nasdaq contract.

Let's say she short sells 1 contract with a six month expiration date, at 2,000 points.

If Barbara is correct and price crashes down to 1,500 in the next six months, Barbara's contract position will be this:

The move down from 2,000 to 1,500 points is a 500 point move. We know that each point is worth $100. So Barbara's position will be $50,000 up on expiry. This is the 500 points multiplied by the $100 per point.

However, if Barbara gets it wrong and the NASDAQ is priced at 2,500 points after six months, Barbara would be in the exact opposite position. Her position would be -$50,000. She would be required to pay additional funds to her broker to maintain the $13,000 maintenance requirement.

As you can see Nasdaq Future Trading has the potential to be very profitable, but does have substantial risks. It is important that the trader fully understands the risks involved before trading nasdaq 100 futures.

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